July 02, 2012

GlaxoSmithKline Agrees to $3B Fraud Settlement

A team from Covington & Burling in Washington represented the pharmaceutical giant GlaxoSmithKline LLC in a record-setting $3 billion criminal and civil settlement over drug misbranding.

Deputy Attorney General James Cole announced the deal today at the U.S. Justice Department, calling it "unprecedented in both size and scope." No executive was charged today.

"At every level, we are determined to stop practices that jeopardize patients' health; harm taxpayers; and violate the public trust–and this historic action is a clear warning to any company that chooses to break the law," Cole, the department's second in command, said at a news conference in a prepared statement.

Covington's team in Washington included partners Geoffrey Hobart and Matthew O'Connor. Hobart, who specializes in the defense of pharmaceutical companies, and O'Connor, a white-collar defense and investigations attorney, were not immediately reached for comment this afternoon.

"Today brings to resolution difficult, long-standing matters for GSK," GlaxoSmithKline chief executive officer Andrew Witty said in a statement. "Whilst these originate in a different era for the company, they cannot and will not be ignored. On behalf of GSK, I want to express our regret and reiterate that we have learned from the mistakes that were made."

Attorney General Eric Holder Jr., a former Covington partner, did not take part in the announcement today at Main Justice. Several top officials joined Cole in the presentation, including U.S. Attorney Carmen Ortiz of Boston and Bill Corr, the deputy secretary of the U.S. Department of Health and Human Services.

GlaxoSmithKline agreed to plead guilty to criminal charges in U.S. District Court for the District of Massachusetts and to pay $1 billion in criminal fines and forfeitures for the illegal marketing and promotion of the drugs Paxil and Wellbutrin.

Officials said the company between 1998 and 2003 unlawfully promoted Paxil for treating depression in patients under the age of 18. The Food and Drug Administration has not approved that use of the drug, DOJ officials said. The officials said GlaxoSmithKline illegally promoted Wellbutrin for uses that included weight loss, substance abuse and sexual dysfunction.

DOJ officials said the company will pay an additional $2 billion to resolve civil allegations under the False Claims Act. The claims include allegations company officials paid kickbacks to doctors to prescribe certain drugs, including Paxil, Wellbutrin and Advair.

GlaxoSmithKline agreed to a five-year corporate integrity agreement, to be monitored by the Department of Health and Human Service’s inspector general’s office. GlaxoSmithKline must, among other things, change its executive compensation program to allow the company to recoup bonuses and long-term incentives if certain executives, or subordinates, engage in significant misconduct.

Cole declined to comment on why no GlaxoSmithKline executive was charged today. He also did not comment on any pending investigations.

The law firm Grant & Eisenhofer represented a whistleblower, Lois Graydon, in the civil claims against GlaxoSmithKline. Graydon, a nurse and former GlaxoSmithKline sales manager, complained about the marketing of Advair, her attorneys said.

Graydon’s attorney, Reuben Guttman, said in a statement that the False Claims Act "plays an important role in health industry compliance enforcement."

The law firm Phillips & Cohen in Washington represented two whistleblowers, Thomas Gerahty, a former senior marketing development manager, and Matthew Burke, a former regional vice president.

“The gravity of Glaxo’s conduct cannot be overstated,” a lawyer for Burke and Gerahty, Erika Kelton, said in a statement. “The company’s improper marketing practices extended across a wide range of its prescription drug portfolio. Given what we saw with Glaxo, Pfizer and other pharma companies, it’s fair to conclude there has been almost no limit to what pharma companies have done to sell their products.”

Stuart Delery, the acting head of the Justice Department's Civil Division, said in prepared remarks that "for far too long, we have heard that the pharmaceutical industry views these settlements merely as the cost of doing business. That is why this administration is committed to using every available tool to defeat health care fraud."